Fed Vice Chairman Nominee Taught Bernanke And Many Others

In other personnel news, the president has nominated Stanley Fischer to serve as the next vice chairman of the Federal Reserve. He would replace Janet Yellen, who's been promoted to chairman of the central bank. Yellen reportedly recruited Fischer personally to serve as her deputy. He spent much of the last decade running Israel's central bank.

As NPR's Scott Horsley reports, Stanley Fischer is credited with helping that country weather the financial crisis better than most and with training many of the world's top economists.

SCOTT HORSLEY, BYLINE: Stanley Fischer is an economic oak tree whose acorns have taken root in financial capitals around the world. Outgoing Fed Chairman Ben Bernanke was a student of Fischer's at MIT. So was Mario Draghi, the head of the European Central Bank, and former U.S. Treasury Secretary Larry Summers.

Another former student, Ken Rogoff - now an economics professor at Harvard - recalls Fischer as an inspirational teacher.

KEN ROGOFF: A lot of people went to MIT economics not thinking about doing macroeconomics. And then they had Stan Fischer as their professor and suddenly it's all they wanted to do.

HORSLEY: At the time, academic economists were often divided into warring camps: The so-called Saltwater economists from coastal universities, who tended to concentrate on market breakdowns; and Freshwater economists centered around the University of Chicago. They preferred to build models in which markets functioned perfectly.

Rogoff says Fischer managed to swim in both schools and still keep his head above water.

ROGOFF: Fischer was one of the few people that both camps just totally respected, which took a lot of economic understanding but probably quite a bit of political acumen as well.

HORSLEY: That political skill proved handy once Fischer came to Washington, first as chief economist for the World Bank and later as the number two official at the International Monetary Fund.

Mohamed El-Erian, who runs the giant PIMCO bond fund, worked under Fischer at the IMF. He describes his former boss as the rare person who's brilliant but also eager to learn from others.

MOHAMED EL-ERIAN: He's not only a very effective policymaker but he's also a very popular policymaker. And these two don't go together very often.

HORSLEY: During his tenure at the IMF, Fischer was confronted with a number of regional financial meltdowns, including Mexico's peso devaluation in 1994 and the Asian financial crisis three years later.

EL-ERIAN: He was always as cool as can be. He was very analytical. He always was the adult in the room. He never let stress get to him.

HORSLEY: Born and raised in Africa, in what's now Zambia and Zimbabwe, Fischer has frequently counseled leaders from the developing world. El-Erian says he often stressed how even small improvements in economic growth could pay big dividends over time.

EL-ERIAN: Let me tell you how many people you can bring out of poverty. Let me tell you about how you can reduce unemployment. For him, it was about making sure that growth is inclusive, that it creates sustainable jobs, and to make sure that you don't end up with a society that is excessively unequal in terms of income and wealth.

HORSLEY: Those concerns are not limited to developing countries. Slow growth and income inequality are now front and center here in the United States.

While the Federal Reserve's main missions are promoting job growth and keeping a lid on inflation, it's also supposed to act as a banking watchdog, preventing the kinds of risky behavior that contributed to do the recent financial crisis.

MIT economist Simon Johnson worries Fischer may not be tough enough on the nation's biggest banks, since he spent three years as vice chairman at Citigroup.

SIMON JOHNSON: Does he believe that some of our largest financial institutions still are too big to fail? If they are too big to fail, how should we deal with them? Should they be forced to shrink? There's a long list of question but they all come back to attitude towards the big banks and how they run themselves.

HORSLEY: That's just one of the hot button topics Fischer is likely to be quizzed about during his Senate confirmation hearing. Harvard's Rogoff's says after a long career making friends in financial foxholes, Fischer should be able to withstand any political flak.

ROGOFF: We live in a world where it's not easy to be a centrist or a moderate, getting attacked from both sides. And that something Stan Fischer has somehow managed to do as an academic, at the IMF and later as governor of the Bank of Israel - a very fractious society. He's managed to be respected by all sides, to maintain his ground in the middle.

HORSLEY: And Rogoff says Fischer will find that a valuable skill at the Federal Reserve.